For UBP’s co-head of pan-European equities, Rob Jones, 2018 was bound to be a difficult year, especially when compared to the idyll that was 2017.
He said: ‘It did not come as a surprise. I knew we had to deal with Brexit and the critical Italian situation, which caused the return of volatility and shifts in bond yields.
‘There are also greater global concerns such as the slowdown in emerging markets and the trade war.’
However, Jones believes that the situation is not going to be critical for long. He said: ‘If a resolution to Brexit is found, then there could be an improvement. Europe managed to resolve the situations in Greece and Cyprus, for example.
‘European companies are not doing that badly. Despite the political uncertainty, the balance sheets are very robust.’
Jones explained how, in difficult times, he has tended to allocate to companies that operate on a global scale and to focus on the ones with a large market capitalisation.
‘I have liked companies such as Total, Diageo and LVMH, for example,’ he said.
Best and worst bets
Jones believes that the healthcare sector, which has been weak for a long time, is one to bet on for the future.
‘Better days will come. Telecommunication companies will also perform better, but I am very selective on these as they typically have leveraged balance sheets. Even so, I believe that the valuations are still not reflecting their value. Last but not least, energy stocks are very cheap and we believe opportunities could lie there too.’
In general, Jones prefers companies which are able to benefit from changing consumption patterns.
‘Consumers are changing the way in which they spend their money. Millennials in particular have different priorities compared with the previous generations. They shop online more, they are more sensitive to social and environmental issues and companies should adapt accordingly.’
Italian luxury clothing company Moncler is a good example, according to the manager. He said: ‘It engages with a lot of its clientele on social media and understands the importance of proposing innovative products.’
Brexit in sight
UK domestic stocks have been a challenge for Jones. He said: ‘Nobody really knows what will happen. The consensus is to avoid the UK, especially domestic stocks, many of which face structural issues as well. On a risk/reward basis, they are beginning to look more interesting though’
Despite 28.3% of the fund’s assets being allocated to the UK, Jones explained that he is backing international companies as opposed to domestic ones.
‘There are good companies, lots of good companies, which are diversified away from domestic UK. For example, there’s Rio Tinto, which is headquartered in London but mines internationally,’ he said.